When the £2.5bn fund was launched in May it was announced that it would make investments of between £2m and £10m in companies with sales of between £10m and £100m, leading to criticism that it excluded the majority of small and medium-sized businesses.

However, Stephen Welton told Your Business that he now expects the bank-backed fund’s “core market” to be businesses with sales of between £5m and £50m.

The fund’s criteria had been criticised by venture capitalists who said there was a mismatch between its target investment size and target company size. Investors argued that companies looking for between £2m and £10m of investment typically have sales of less than £10m.

Mr Welton said: “I don’t disagree. I think the core market where there’s a lot of demand is between £5m and £50m.

“A company turning over £10m is of a size where it’s suitable to take on a partner but it might not be a very interesting company. A company turning over less that has grown quickly and has a good management team, we will look at.”

Mr Welton said the fund is currently conducting due diligence on a potential investment in a company with sales of £5m.

“It’s growing at 40pc. Any company growing [that quickly], I don’t really care what the turnover is, it’s interesting,” he said, although he added that a company with sales of nearer £1m would be “highly unlikely” to win the fund’s backing.

The fund was formed following Government talks with high street banks which also produced the Project Merlin lending agreement.

It is owned by five banks – Barclays, HSBC, Lloyds, Royal Bank of Scotland and Standard Chartered – and will invest for between five and seven years.

Mr Welton said the fund’s first deal is due to be announced next month.

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